Lumber Liquidators Announces Fourth Quarter And Full Year 2018 Financial Results

TOANO, Va., March 18, 2019 /PRNewswire/ -- Lumber Liquidators (NYSE: LL), a leading specialty retailer of hard-surface flooring in North America, today announced financial results for the fourth quarter and full year ended December 31, 2018.

Fourth Quarter Results

Net sales for fourth quarter of 2018 increased $9.1 million, or 3.5%, to $268.9 million from $259.9 million in the fourth quarter of 2017. Net sales in comparable stores increased $1.0 million, or 0.4%, and net sales in non-comparable stores increased $8.1 million. The Company opened five new stores and closed one during the fourth quarter of 2018.

Gross profit increased $3.9 million, or 4.2%, in the fourth quarter of 2018 to $96.0 million from $92.1 million in the comparable period in 2017. Gross margin increased to 35.7% in the fourth quarter of 2018 from 35.4% in the fourth quarter of 2017. Adjusted Gross Margin (a non-GAAP measure) was 35.1% and 35.4% in the fourth quarter of 2018 and 2017, respectively. This decline was driven by tariffs that were imposed on goods received beginning at the end of the third quarter of 2018, higher transportation costs, and dilution from increased installation sales mix that have lower margins, all of which was partially offset by favorable category mix toward vinyl products with higher-than-average margins.

Selling, general and administrative ("SG&A") expenses increased by $59.4 million in the fourth quarter of 2018 to $150.9 million, compared to $91.5 million in the comparable period in 2017. The increase in SG&A was primarily attributable to the $61 million in accruals for settlements with the United States Attorney's Office for the Eastern District of Virginia (U.S. Attorney) and the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) and the settlement of the Gold litigation related to the Company's Morning Star Strand bamboo flooring (Strand Bamboo Product) that were recorded in the fourth quarter of 2018. Certain other items affecting the change in SG&A expenses are also highlighted in the attached supporting schedule. When excluding those items, Adjusted SG&A (a non-GAAP measure) was $87.6 million, an increase of $1.1 million from the prior-year period. Adjusted SG&A as a percentage of sales (a non-GAAP measure) decreased to 32.6% from 33.3% during the prior-year period.

Operating loss for the three months ended December 31, 2018 was $(54.9) million compared to operating income of $0.6 million in the comparable period in 2017. Excluding the items shown in the attached supplemental schedule, Adjusted Operating Income (a non-GAAP measure) was $6.7 million and Adjusted Operating Margin (a non-GAAP measure) was 2.5% in 2018, compared to $5.7 million and 2.2% in 2017.

Net loss for the three months ended December 31, 2018 was $(56.9) million, or $(1.99) per diluted share, compared to net income of $3.0 million, or $0.10 per diluted share, for the three months ended December 31, 2017. Adjusted Earnings per Diluted Share (a non-GAAP measure) for the three months ended December 31, 2018 was $0.17, compared to $0.17 for the three months ended December 31, 2017.

At December 31, 2018, the Company had approximately $79.5 million in liquidity, comprised of cash and cash equivalents and availability under its revolving credit facility. The Company had $65 million outstanding on its revolving credit facility at December 31, 2018, compared to $15 million at December 31, 2017.

Full Year Results

Net sales increased $55.7 million, or 5.4%, to $1,085 million in 2018 from $1,029 million in 2017, which includes a comparable store net sales increase of $26.6 million, or 2.6% and a non-comparable store net sales increase of $29.1 million. The Company opened 21 new stores in 2018, closed one, and as of December 31, 2018, operated 413 stores in the United States and Canada.

Gross margin in 2018 increased to 36.2% from 35.9% in 2017, and when excluding items in the attached supporting schedule, Adjusted Gross Margin (a non-GAAP measure) increased to 35.6% in 2018 from 35.5% in 2017, a 10 basis point improvement despite an approximately 40 basis point negative impact from tariffs that began in Q4 2018.

SG&A expenses increased as a percentage of net sales to 40.9% in 2018, compared to 39.5% in 2017. When excluding items in the attached supporting schedule, Adjusted SG&A as a percentage of net sales (a non-GAAP measure) was 33.7% in 2018, an 80 basis point improvement from 34.5% in 2017.

Operating loss was $50.6 million in 2018, compared to an operating loss of $37.0 million in 2017, both heavily influenced by settlements. Adjusted Operating Income (a non-GAAP measure) was $20.2 million, with Adjusted Operating Margin of 1.9%, in 2018, compared to $10.7 million, or 1.0%, in 2017.

Net loss was $54.4 million, or $1.90 per diluted share, in 2018 compared to a net loss of $37.8 million, or $1.33 per diluted share, in 2017, with both periods being adversely affected by legal and other matters.

Executive Commentary

Dennis Knowles, Chief Executive Officer, commented, "2018 was a year of transformation for Lumber Liquidators, during which we executed on our growth initiatives, put significant legacy legal issues behind us, and laid the groundwork to position us for long-term success. Our Pro and Install businesses continued to accelerate, and we made tremendous progress reimaging how we engage with our customers. We also believe we took meaningful steps in improving our supply chain and eliminating costs, enabling us to expand adjusted gross margins despite the impact from tariffs and increased transportation costs.

In addition to reaching a key settlement last week with the U.S. Attorney, DOJ and SEC related to a legacy matter involving former company executives, this morning we announced the entering into of a MOU to resolve the plaintiff's allegations in the Gold Litigation regarding our Morning Star Strand Bamboo Product. These legal settlements represent a major milestone in our transformation, which we believe will strengthen our ability to better execute on our operational initiatives. As we look forward, we remain focused on providing our customers a differentiated flooring experience and enhancing our value proposition, which we believe will ultimately drive top-line growth and enhance profitability."

Legal Settlements

As announced in a press release and in a Form 8-K on March 12, 2019, the Company reached resolution with the U.S. Attorney, the DOJ and the Securities and Exchange Commission (SEC) concerning their criminal and civil investigations into the public disclosures the Company made in March 2015 regarding whether its Chinese made laminates were compliant with certain California state regulatory requirements (the Investigations). In connection with the Investigations, the Company entered into a deferred prosecution agreement (DPA) with the U.S. Attorney and the DOJ and submitted an Offer of Settlement to the SEC. Pursuant to the DPA, the U.S. Attorney and the DOJ filed a one count criminal information in the United States District Court for the Eastern District of Virginia, charging the Company with securities fraud. The DPA stated this charge is deferred and will be dismissed after three years provided that the Company meets certain obligations, many of which the Company has already implemented. The Company entered into a settlement of an administrative proceeding with the SEC regarding violations of Sections 10(b) and 13(a) of the Exchange Act and applicable rules. Notably, neither the DOJ nor the SEC made any findings regarding the safety or quality of the Company's laminate flooring previously sourced from China. As a result, the Company recorded a $33 million charge to its December 31, 2018 statement of operations.

Today, the Company announced that it has entered into a Memorandum of Understanding (the MOU) with plaintiffs in the Gold Litigation. Under the terms of the MOU, the parties agree to work together to prepare a final settlement agreement that would resolve on a nationwide basis the claims of all purchasers of Morning Star Strand Bamboo from January 1, 2012 through March 15, 2019, with no admission of fault or liability by the Company. The Company will contribute $14 million in cash and provide $14 million in store-credit vouchers, with a potential additional $2 million in store-credit vouchers based on obtaining a claim's percentage of more than 7%, for an aggregate settlement of up to $30 million to settle the Gold Litigation. The MOU is subject to certain contingencies, including the execution of a definitive settlement agreement, board approval of the definitive settlement agreement, and court approvals.

Chief Financial Officer Transition

The Company also announces today that its Chief Financial Officer, Martin D. Agard, will resign from the Company effective April 5, 2019 to accept a new role with a company in Florida. Mr. Agard has been the Company's Chief Financial Officer since September 2016 and has been instrumental in the rebuilding of the Company's finance function and clearing many of the legacy issues the Company has faced. The Company has retained Herbert Mines Associates, a leading executive search firm, to assist in a comprehensive search for a new CFO, which will commence immediately.

Timothy J. Mulvaney, currently the Company's Chief Accounting Officer, has been named Interim Chief Financial Officer, effective April 5, 2019. Mr. Mulvaney will continue to serve as Chief Accounting Officer.

Mr. Mulvaney has been the Company's Chief Accounting Officer since June 2017. Mr. Mulvaney is a certified public accountant and spent 20 years in various financial roles with Media General. From 2012 to 2017, Mr. Mulvaney served as Media General's Controller and Chief Accounting Officer up until the effective time of the merger between Media General and Nexstar Broadcasting Group, Inc. Prior to joining Media General, Mr. Mulvaney spent six years at Ernst & Young LLP. Mr. Mulvaney has a B.B.A. - Accounting from the College of William and Mary.

Dennis Knowles, Chief Executive Officer, commented, "On behalf of our entire management team and board, I would like to thank Marty for his contribution during this pivotal time in the Company's transformation. We have a strong bench of talent in our finance and accounting organization, and I have the highest confidence in our interim CFO, Tim Mulvaney, who has been an integral part of our finance organization for the past two years."

2019 Outlook

The Company introduced 2019 full-year expectations as follows:

    --  Total revenue growth percentage in the mid-single digits;
    --  Comparable store sales growth percentage flat to low-single digits;
    --  Adjusted Operating Margin (a non-GAAP measure) of 1.9% to 2.4%;
    --  Opening 10 to 15 new stores during the year; and
    --  Capital spending of $15 to $18 million.

The Company also noted 2019 first quarter expectations as follows:

    --  Comparable store sales growth percentage in the negative low-single
        digits;
    --  Adjusted Gross Margin (a non-GAAP measure) in range of 34.5% to 35.0%
        due to tariff impact;
    --  Adjusted operating loss of $3 to $5 million.

Conference Call and Webcast Information

The Company plans to host a conference call and audio webcast on March 18, 2019, at 8:00 a.m. Eastern Time. The conference may be accessed by dialing (877) 407-9039 or (201) 689-8470. A replay will be available approximately two hours after the call ends through March 25, 2019 and may be accessed by dialing (844) 512-2921 or (412) 317-6671 and entering pin number 13688341. The live conference call and replay can also be accessed via audio webcast at the Investor Relations section of the Company's website, www.LumberLiquidators.com.

About Lumber Liquidators

Lumber Liquidators is one of North America's leading specialty retailers of hard-surface flooring. The company features more than 400 varieties of floors in the latest styles, including solid and engineered hardwood, bamboo, cork, laminate, resilient vinyl, waterproof vinyl plank and porcelain tile. Additionally, Lumber Liquidators provides a wide selection of flooring enhancements and accessories to complement, install and maintain new floors. Every location is staffed with flooring experts who can provide advice, pro services and installation options for all of Lumber Liquidators' products, much of which is in stock and ready for delivery. All Lumber Liquidators products are backed by best-in-class warranties and a best-price guarantee.

With premier brands including Bellawood and Morning Star Bamboo, Lumber Liquidators' flooring is often featured on popular television shows such as HGTV's Dream Home and This Old House. For more information, please visit www.LumberLiquidators.com or call 1.800.HARDWOOD.

Lumber Liquidators aims to be the industry leader in sustainability. For more information, please visit www.LumberLiquidators.com/Sustainability. Learn more about our corporate giving program at LayItForward.LumberLiquidators.com. You can also follow the Company on Facebook and Twitter.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This press release includes "forward-looking" statements (rather than historical facts) that are subject to risks and uncertainties that could cause actual results to differ materially from those described. Although we believe that the expectations expressed in these forward-looking statements are reasonable, we cannot promise that our expectations will turn out to be correct. Our actual results could be materially different from and worse than our expectations. With respect to such forward-looking statements, we seek the protections afforded by the Private Securities Litigation Reform Act of 1995. These risks include, without limitation, the impact on us of any of the following:

    --  the outcomes of government investigations and legal proceedings, and the
        related impact on liquidity;
    --  reputational harm;
    --  obligations related to and impacts of new laws and regulations,
        including pertaining to tariffs;
    --  obtaining products from abroad, including the effects of tariffs, as
        well as the effects of antidumping and countervailing duties;
    --  obligations under various settlement agreements and other compliance
        matters;
    --  disruptions related to our corporate headquarters relocation;
    --  impact of the Tax Cuts and Jobs Act (the "Tax Act");
    --  the inability to open new stores and fund other capital expenditures
        needs;
    --  managing growth;
    --  increased transportation costs;
    --  damage to our assets;
    --  disruption in our ability to distribute our products;
    --  operating stores in Canada and an office in China;
    --  managing third-party installers and product delivery companies,
        including the quality of service;
    --  renewing store or warehouse leases;
    --  having sufficient suppliers;
    --  our, and our suppliers', compliance with complex and evolving rules,
        regulations, and laws at the federal, state, and local level;
    --  disruption in our ability to obtain products from our suppliers;
    --  product liability claims;
    --  availability of suitable hardwood, including due to disruptions from the
        impacts of severe weather;
    --  changes in economic conditions, both domestic and abroad;
    --  sufficient insurance coverage;
    --  access to capital;
    --  disruption due to cybersecurity threats;
    --  the handling of confidential customer information, including the impacts
        from the California Consumer Privacy Act;
    --  management information systems disruptions;
    --  alternative e-commerce offerings;
    --  our advertising strategy;
    --  anticipating consumer trends;
    --  competition;
    --  impact of changes in accounting guidance, including implementation
        guidelines and interpretations;
    --  maintenance of valuation allowances on deferred tax assets and the
        impacts thereof;
    --  internal controls;
    --  stock price volatility; and
    --  anti-takeover provisions.

These risks and uncertainties are described in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2018.

Non-GAAP and Other Information

To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses the following non-GAAP financial measures: (i) Adjusted Gross Profit; (ii) Adjusted Gross Margin; (iii) Adjusted SG&A; (iv) Adjusted SG&A as a percentage of sales; (v) Adjusted Operating Income; (vi) Adjusted Operating Margin and (vii) Adjusted Earnings Per Diluted Share. These non-GAAP financial measures should be viewed in addition to, and not in lieu of, financial measures calculated in accordance with GAAP. These supplemental measures may vary from, and may not be comparable to, similarly titled measures by other companies.

The non-GAAP financial measures are presented because management uses these non-GAAP financial measures to evaluate the Company's operating performance and to determine incentive compensation and to address questions it receives. Therefore, the Company believes that the presentation of non-GAAP financial measures provides useful supplementary information to, and facilitates additional analysis by, investors. The presented non-GAAP financial measures exclude items that management does not believe reflect the Company's core operating performance, which include regulatory and legal settlements and associated legal and operating costs, and changes in antidumping and countervailing duties from prior periods, as such items are outside of the Company's control or are due to their inherent unusual, non-operating, unpredictable, non-recurring, or non-cash nature.

For further information contact:

Lumber Liquidators Investor Relations
ir@lumberliquidators.com
Tel: 757.566.7512


                                                                                                
       
         Lumber Liquidators Holdings, Inc.

                                                                                                  
       
          Consolidated Balance Sheets

                                                                                                    
       
              (in thousands)






                                                                                                                                            December 31,                   December 31,


                                                                                                                                                    2018                            2017




            
              Assets



            
              Current Assets:



            Cash and Cash Equivalents                                                                                                                        $
        11,565                    $
         19,938



            Merchandise Inventories                                                                                                                               318,272                          262,280



            Prepaid Expenses                                                                                                                                        6,299                            9,108



            Deposit for Legal Settlement                                                                                                                           21,500



            Other Current Assets                                                                                                                                    8,667                            6,670




            
              Total Current Assets                                                                                                                       366,303                          297,996



            Property and Equipment, net                                                                                                                            93,689                          100,491



            Goodwill                                                                                                                                                9,693                            9,693



            Other Assets                                                                                                                                            5,832                            2,615




            
              Total Assets                                                                                                                     $
     
          475,517               $
     
           410,795






            
              Liabilities and Stockholders' Equity



            
              Current Liabilities:



            Accounts Payable                                                                                                                                 $
        73,412                    $
         67,676



            Customer Deposits and Store Credits                                                                                                                    40,332                           38,546



            Accrued Compensation                                                                                                                                    9,265                           12,101



            Sales and Income Tax Liabilities                                                                                                                        4,200                            4,273



            Accrual for Legal Matters and Settlements Current                                                                                                      97,625                           36,960



            Other Current Liabilities                                                                                                                              17,290                           18,605




            
              Total Current Liabilities                                                                                                                  242,124                          178,161



            Other Long-Term Liabilities                                                                                                                            20,203                           19,235



            Deferred Tax Liability                                                                                                                                    792                              552



            Revolving Credit Facility                                                                                                                              65,000                           15,000




            
              Total Liabilities                                                                                                                          328,119                          212,948






            
              Stockholders' Equity:



            Common Stock ($0.001 par value; 35,000 shares authorized; 31,578 and 31,397 shares                                                                         32                               31
    issued and 28,627 and 28,490 shares outstanding at December 31, 2018 and 2017,
    respectively)



            Treasury Stock, at cost (2,951 and 2,907 shares, respectively)                                                                                      (141,828)                       (140,875)



            Additional Capital                                                                                                                                    213,744                          208,629



            Retained Earnings                                                                                                                                      76,835                          131,214



            Accumulated Other Comprehensive Loss                                                                                                                  (1,385)                         (1,152)




            
              Total Stockholders' Equity                                                                                                                 147,398                          197,847




            
              Total Liabilities and Stockholders' Equity                                                                                       $
     
          475,517               $
     
           410,795


                                                                    
         
         Lumber Liquidators Holdings, Inc.

                                                                  
         
         Consolidated Statements of Operations

                                                                
         
         (in thousands, except per share amounts)






                                                                                                                   Three Months Ended                  
           
                Year Ended
                                                                                                          December 31,                                         December 31,



                                                                                                          2018                           2017                       2018                           2017






              
                Net Sales



              Net Merchandise Sales                                                         $
              234,127                      $
      233,566           $
             955,949                  $
        938,269



              Net Services Sales                                                                         34,794                           26,293                      128,687                         90,664




              Total Net Sales                                                                           268,921                          259,859                    1,084,636                      1,028,933



              
                Cost of Sales



              Cost of Merchandise Sold                                                                  146,903                          148,345                      596,411                        591,087



              Cost of Services Sold                                                                      26,043                           19,394                       95,285                         68,785




              Total Cost of Sales                                                                       172,946                          167,739                      691,696                        659,872






              
                Gross Profit                                                                  95,975                           92,120                      392,940                        369,061



              Selling, General and Administrative Expenses                                              150,885                           91,515                      443,513                        406,027




              Operating (Loss) Income                                                                  (54,909)                             605                     (50,573)                      (36,966)



              Other Expense                                                                               1,612                              186                        2,827                          1,591




              (Loss) Income Before Income Taxes                                                        (56,521)                             419                     (53,400)                      (38,557)



              Income Tax Benefit (Expense)                                                                  354                          (2,570)                         979                          (734)




              
                Net (Loss) Income                                  $
              
                (56,875)                 $
       
        2,989  $
         
               (54,379)          $
       
          (37,823)




              
                Net (Loss) Income per Common Share-                  $
              
                (1.99)                  $
       
        0.10    $
         
               (1.90)            $
       
          (1.33)
    Basic




              
                Net (Loss) Income per Common Share-                  $
              
                (1.99)                  $
       
        0.10    $
         
               (1.90)            $
       
          (1.33)
    Diluted




              Weighted Average Common Shares
    Outstanding:



              Basic                                                                                      28,624                           28,488                       28,571                         28,407



              Diluted                                                                                    28,624                           28,794                       28,571                         28,407


                                                                                             
       
        Lumber Liquidators Holdings, Inc.

                                                                                           
       
        Consolidated Statements of Cash Flows

                                                                                                
      
                (in thousands)






                                                                                                             
              
                Year Ended December 31,

                                                                                                                                                               ---

                                                                                                                        2018                                       2017                    2016






     
                Cash Flows from Operating Activities:



     Net Loss                                                                                                                            $
              (54,379)                   $
      (37,823)             $
        (68,563)



     Adjustments to Reconcile Net Loss:



     Depreciation and Amortization                                                                                                                     18,425                          17,739                      17,505



     Deferred Income Taxes (Benefit) Provision                                                                                                            240                         (3,246)                     14,205



     Stock-Based Compensation Expense                                                                                                                   4,091                           4,735                       5,568



     Provision for Inventory Obsolescence Reserves                                                                                                      3,108                           6,349                       3,723



     Impairment and Loss on Disposal of Fixed Assets                                                                                                    1,818                           1,498



     Stock-Based Portion of Provision for Securities Class Action                                                                                                                                                16,760



     Changes in Operating Assets and Liabilities:



     Merchandise Inventories                                                                                                                         (59,179)                         32,614                    (62,054)



     Accounts Payable                                                                                                                                   4,852                        (52,475)                     64,025



     Customer Deposits and Store Credits                                                                                                                1,685                           6,001                       (988)



     Prepaid Expenses and Other Current Assets                                                                                                          2,902                          28,962                    (11,411)



     Accrual for Legal Matters and Settlements                                                                                                         63,951                          36,960



     Deposit for Legal Settlement                                                                                                                    (21,500)



     Other Assets and Liabilities                                                                                                                     (9,000)                        (1,922)                    (6,317)




     
                Net Cash (Used in) Provided by Operating Activities                                                                                (42,986)                         39,392                    (27,547)






     
                Cash Flows from Investing Activities:



     Purchases of Property and Equipment                                                                                                             (14,332)                        (7,411)                    (8,908)



     Proceeds from Disposal of Fixed Assets                                                                                                               871                           2,273



     Other Investing Activities                                                                                                                                                          800                         575




     
                Net Cash Used in Investing Activities                                                                                              (13,461)                        (4,338)                    (8,333)






     
                Cash Flows from Financing Activities:



     Borrowings on Revolving Credit Facility                                                                                                           74,000                          40,000                      37,000



     Payments on Revolving Credit Facility                                                                                                           (24,000)                       (65,000)                   (17,000)



     Proceeds from the Exercise of Stock Options                                                                                                          770                           1,347                         539



     Payments for Stock Repurchases                                                                                                                     (953)                        (1,455)                      (433)



     Payments on Financed Insurance Obligations                                                                                                         (612)                          (734)



     Payments on Capital Lease Obligations                                                                                                                                             (351)                      (469)



     Payments for Debt Issuance Costs                                                                                                                                                                             (933)




     
                Net Cash Provided by (Used in) Financing Activities                                                                                  49,205                        (26,193)                     18,704




     
                Effect of Exchange Rates on Cash and Cash Equivalents                                                                               (1,131)                            806                         744




     
                Net (Decrease) Increase in Cash and Cash Equivalents                                                                                (8,373)                          9,667                    (16,432)



     
                Cash and Cash Equivalents, Beginning of Year                                                                                         19,938                          10,271                      26,703




     
                Cash and Cash Equivalents, End of Year                                                                      $
              
                11,565                $
       
        19,938        $
         
          10,271






     
                Supplemental disclosure of non-cash operating and financing activities:



     Financed Insurance Premiums                                                                  
              
                $                                                  $
       
        1,346   
     
     $





     
                Supplemental disclosure of non-cash investing and financing activities:



     Borrowing on Capital Lease Obligation to Acquire Equipment                                   
              
                $                                            
     
     $                          $
         
          351


                                                                                                                      
              
               Lumber Liquidators Holdings, Inc.

                                                                                                                       
              
               GAAP to Non-GAAP Reconciliation

                                                                                                                      
              
               (in thousands, except percentages)





     Items impacting gross margin with comparisons to the prior-year periods include:




                                                                                             
      
            Quarter Ended December 31,                                                           
     
             Year Ended December 31,



                                                                                                        2018                                                   2017                                  2018                                      2017



                                                                                       
     
     $                                  % of Sales                 
              
                $                        % of Sales              
      
           $                   % of Sales 
           
             $              % of Sales



                                                                                                                                         
             
                (dollars in thousands)



     Gross Profit/Margin, as reported (GAAP)                                                $
      95,976                   35.7                                              $
             92,120   35.4                                $
         392,940        36.2               $
           369,061         35.9
                                                                                                                            %                                                                   %                                                       %                                           %





     Antidumping Adjustments (1)                                                                                                          %                                                                %                          (4,948)      (0.5)                       (2,797)         (0.3)
                                                                                                                                                                                                                                                        %                                           %



     HTS Classification Adjustments (2)                                                        (1,711)                 (0.6)                                                                               %                          (1,711)      (0.1)
                                                                                                                            %                                                                                                                           %                                                  %



     Indoor Air Quality Testing Program (3)                                                                                               %                                                                %                                                  %                  (993)         (0.1)
                                                                                                                                                                                                                                                                                                    %




     Sub-Total Items above                                                                     (1,711)                 (0.6)                                                                               %                          (6,659)      (0.6)                       (3,790)         (0.4)
                                                                                                                            %                                                                                                                           %                                           %






     Adjusted Gross Profit/Margin (non-GAAP measures)                                       $
      94,265                   35.1                                              $
             92,120   35.4                                $
         386,281        35.6               $
           365,271         35.5
                                                                                                                            %                                                                   %                                                       %                                           %




              
                (1)              We recognized
                                               adjustments
                                               to
                                               countervailing
                                               and
                                               antidumping
                                               duties of a
                                               favorable
                                               $4.9 million
                                               and a
                                               favorable
                                               $2.8 million
                                               associated
                                               with
                                               applicable
                                               shipments of
                                               engineered
                                               hardwood from
                                               China related
                                               to prior
                                               periods for
                                               the years
                                               ended
                                               December 31,
                                               2018 and
                                               2017,
                                               respectively.





              
                (2)              We recognized
                                               classification
                                               adjustments
                                               related to
                                               Harmonized
                                               Tariff
                                               Schedule
                                               ("HTS") duty
                                               categorization
                                               in prior
                                               periods
                                               during the
                                               three months
                                               ended
                                               December 31,
                                               2018.





              
                (3)              During the
                                               second
                                               quarter 2016,
                                               we recorded
                                               an accrual of
                                               $3 million,
                                               which
                                               represented
                                               our best
                                               estimate of
                                               costs to be
                                               incurred in
                                               future
                                               periods
                                               related to
                                               our indoor
                                               air quality
                                               testing
                                               program
                                               agreed to
                                               with the
                                               Consumer
                                               Product
                                               Safety
                                               Commission.
                                               In the second
                                               quarter of
                                               2017, we
                                               reduced the
                                               reserve for
                                               estimated
                                               costs related
                                               to this
                                               testing
                                               program by
                                               approximately
                                               $1 million.
                                               Costs in 2018
                                               were nominal
                                               and expensed
                                               as incurred.



     Items impacting SG&A with comparisons to the prior-year periods include:




                                                                                     
       
              Quarter Ended December 31,                                            
      
             Year Ended December 31,



                                                                                                  2018                                      2017                                  2018                                  2017



                                                                               
     
     $                                      % of Sales     
             
                $                          % of Sales          
        
           $        % of Sales    
         
       $         % of Sales



                                                                                                                                 
         
       (dollars in thousands)



     SG&A, as reported (GAAP)                                                       $
       150,885                   56.1                                 $
            91,515    35.2                                $
       443,513   40.9            $
       406,027      39.5
                                                                                                                      %                                                      %                                                %                                %





     Accrual for Legal Matters and Settlements (1)                                        61,000                   22.7                                              960     0.4                                      63,951    5.9                  36,960       3.6
                                                                                                                      %                                                      %                                                %                                %



     Legal and Professional Fees(2)                                                        2,325                    0.8                                            2,440     0.9                                      11,707    1.1                  11,314       1.1
                                                                                                                      %                                                      %                                                %                                %



     All Other (3)                                                                                                                  %                            1,687     0.6                                       1,769    0.2                   3,146       0.3
                                                                                                                                                                             %                                                %                                %




     Sub-Total Items above                                                                63,325                   23.5                                            5,087     1.9                                      77,427    7.2                  51,420       5.0
                                                                                                                      %                                                      %                                                %                                %






     Adjusted SG&A (a non-GAAP measure)                                              $
       87,560                   32.6                                 $
            86,428    33.3                                $
       366,086   33.7            $
       354,607      34.5
                                                                                                                      %                                                      %                                                %                                %




              
                (1)              This amount
                                               represents
                                               the charge to
                                               earnings
                                               related to
                                               the Bamboo
                                               Flooring
                                               Litigation,
                                               the
                                               governmental
                                               investigations,
                                               and Related
                                               Laminate
                                               Matters in
                                               2018, as well
                                               as the charge
                                               to earnings
                                               in 2017
                                               related to
                                               the
                                               Formaldehyde
                                               MDL and
                                               Abrasion MDL
                                               settlements.





              
                (2)              Represents
                                               charges to
                                               earnings
                                               related to
                                               our defense
                                               of
                                               significant
                                               legal
                                               actions,
                                               described in
                                               note 1 above,
                                               during the
                                               period. This
                                               does not
                                               include all
                                               legal costs
                                               incurred by
                                               the Company.





              
                (3)              In 2018, All
                                               Other
                                               represents an
                                               impairment of
                                               certain
                                               assets
                                               related to
                                               our decision
                                               to exit the
                                               finishing
                                               business. In
                                               2017, All
                                               Other
                                               represents an
                                               impairment of
                                               certain
                                               assets
                                               related to a
                                               vertical
                                               integration
                                               initiative we
                                               have
                                               discontinued.


                                                                                                                                             
              
               Lumber Liquidators Holdings, Inc.

                                                                                                                                         
             
               GAAP to Non-GAAP Reconciliation - Continued

                                                                                                                                            
              
               (in thousands, except percentages)





     Items impacting operating (loss) income with comparisons to the prior-year periods include:




                                                                                                      
       
          Quarter Ended December 31,                                                                        
             
        Year Ended December 31,


                                                                                                                   2018                                   2017                                                      2018                                           2017



                                                                                                  
     
       $                                          % of Sales                 
              
                $                        % of Sales                 
        
               $                   % of Sales    
           
              $                % of Sales



                                                                                                                                                             
             
                (dollars in thousands)



     Operating (Loss) Income, as reported (GAAP)                                                          $
        (54,909)                   (20.4)                                               $
              605         0.2                                $
             (50,573)     (4.7)                 $
           (36,966)         (3.6)
                                                                                                                                                 %                                                                        %                                                           %                                               %





     Gross Margin Items:



     Antidumping Adjustments (1)                                                                                                                              %                                                                 %                                    (4,948)     (0.5)                           (2,797)         (0.3)
                                                                                                                                                                                                                                                                                      %                                               %



     HTS Classification Adjustments (2)                                                                          (1,711)                    (0.6)                                                                               %                                    (1,711)     (0.1)
                                                                                                                                                 %                                                                                                                                    %                                                        %



     Indoor Air Quality Testing Program (3)                                                                                                                   %                                                                 %                                                           %                      (993)         (0.1)
                                                                                                                                                                                                                                                                                                                                      %




     Gross Margin Subtotal                                                                                       (1,711)                    (0.6)                                                                               %                                    (6,659)     (0.6)                           (3,790)         (0.4)
                                                                                                                                                 %                                                                                                                                    %                                               %






     SG&A Items:



     Accrual for Legal Matters and Settlements 4                                                                  61,000                      22.7                                                            960         0.4                                             63,951        5.9                             36,960            3.6
                                                                                                                                                 %                                                                        %                                                           %                                               %



     Legal and Professional Fees5                                                                                  2,325                       0.8                                                          2,440         0.9                                             11,707        1.1                             11,314            1.1
                                                                                                                                                 %                                                                        %                                                           %                                               %



     All Other 6                                                                                                                                              %                                           1,687         0.6                                              1,769        0.2                              3,146            0.3
                                                                                                                                                                                                                          %                                                           %                                               %




     SG&A Subtotal                                                                                                63,325                      23.5                                                          5,087         1.9                                             77,427        7.2                             51,420            5.0
                                                                                                                                                 %                                                                        %                                                           %                                               %






     Adjusted Operating Income (a non-GAAP measure)                                                          $
        6,705                       2.5                                              $
              5,692         2.1                                  $
             20,195        1.9                   $
            10,664            1.0
                                                                                                                                                 %                                                                        %                                                           %                                               %



                                               See the Gross
                                                 Margin
                                                 section
                                                 above for
                                                 more
                                                 detailed
                                                 explanations
                                                 of these
                                                 individual

              
                1,2,3                items.




                                               See the SG&A
                                                 section
                                                 above for
                                                 more
                                                 detailed
                                                 explanations
                                                 of these
                                                 individual

              
                4,5,6                items.


                                                                                                
          
          Lumber Liquidators Holdings, Inc.

                                                                                           
             
       GAAP to Non-GAAP Reconciliation - Continued

                                                                                                
          
          (in thousands, except percentages)





     Items impacting earnings per diluted share with comparisons to the prior-year periods include:




                                                                                                                                               Quarter Ended December 31,                              Year Ended December 31,

                                                                                                                                                                                               ---

                                                                                                                             2018                    2017                    2018                 2017

                                                                                                                                                                                                ---

                                                                                                                                                     (in thousands, except per share amounts)



     Net (Loss) Income, as reported (GAAP)                                                                                         $
              (56,876)                          $
              2,989                 $
             (54,379)            $
           (37,823)

                                                                                                                                                                                                                                                                ===


     Net (Loss) Income per Diluted Share (GAAP)                                                                                      $
              (1.99)                           $
              0.10                   $
             (1.90)              $
           (1.33)

                                                                                                                                                                                                                                                                ===




     Gross Margin Items:



     Antidumping Adjustments (1)                                                                                                                                                                        (4,948)                         (2,797)



     HTS Classification Adjustments (2)                                                                                  (1,711)                                                                        (1,711)



     Indoor Air Quality Testing Program (3)                                                                                                                                                                                               (993)



     Gross Margin Subtotal                                                                                               (1,711)                                                                        (6,659)                         (3,790)






     SG&A Items:



     Accrual for Legal Matters and Settlements 4                                                                                               61,000                                         960                              63,951                        36,960



     Legal and Professional Fees5                                                                                                               2,325                                       2,440                              11,707                        11,314



     All Other6                                                                                                                                                          1,687                             1,769                            3,146



     SG&A Subtotal                                                                                                                             63,325                                       5,087                              77,427                        51,420






     Tax Impact of Adjustments to Net (Loss) Income 7                                                                                                                  (3,108)                                                          (3,108)






     Adjusted Earnings                                                                                                                $
              4,738                           $
              4,968                   $
             16,389                $
           6,699

                                                                                                                                                                                                                                                                ===


     Adjusted Earnings per Diluted Share (a non-GAAP measure)                                                                          $
              0.17                            $
              0.17                     $
             0.57                 $
           0.23

                                                                                                                                                                                                                                                                ===




              
                1,2,3               See the Gross
                                                 Margin
                                                 section
                                                 above for
                                                 more
                                                 detailed
                                                 explanations
                                                 of these
                                                 individual
                                                 items.





              
                4,5,6               See the SG&A
                                                 section
                                                 above for
                                                 more
                                                 detailed
                                                 explanations
                                                 of these
                                                 individual
                                                 items.




        
              
                7               We considered
                                                 the tax
                                                 impact
                                                 related to
                                                 the pre-tax
                                                 adjustments
                                                 above.  The
                                                 Company has
                                                 a full
                                                 valuation
                                                 allowance
                                                 recorded
                                                 against its
                                                 net deferred
                                                 tax assets,
                                                 which
                                                 effectively
                                                 offsets its
                                                 federal
                                                 taxes, other
                                                 than a $3.1
                                                 million tax
                                                 benefit that
                                                 the Company
                                                 recognized
                                                 related to
                                                 the Tax Act.

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SOURCE Lumber Liquidators